Is L2 privacy inferior or equivalent to L1 privacy?

Can someone kindly clarifying this issue for me?

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I’ll direct you to this reply I wrote awhile ago regarding L1 vs L2 privacy, a bit old but still relevant:

https://www.reddit.com/r/zec/s/aw4xgVjeyV

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Many thanks Shawn.

Ethereums implementation of zkSNARKs in smart contracts does nothing to help protect the general ETH token users privacy. It’s a cool tool that developers can take advantage of to help thier particular contracts gain privacy features but it is not a “whole chain” solution.

Similar to other 2nd layer solutions like LN for Bitcoin the base layer still provides final settlement of a contract or funding/closing LN state channels. This opening/settlement still leaks lots of information about what went on in the channel.

Why is this find-and-replace wrong?

Zcash’s implementation of zkSNARKs in shielded pools does nothing to help protect the general ZEC token users privacy. It’s a cool tool that users can take advantage of to help thier particular coins in the pool gain privacy features but it is not a “whole chain” solution.

Similar to other 2nd layer solutions like LN for Bitcoin the base layer still provides final settlement of a contract or funding/closing LN state channels. This joining/leaving the shielded pool still leaks lots of information about what went on in the pool.

Responding to another part of your post:

And lastly you have the anonymity set. The anonymity set (number of users your transaction is hidden among) is limited to the number of users who would be particpating/interacting with that particular smart contract.

This is true about any shielded pool. Zcash has created new shielded pools and had to start over from 0 anonymity set several times. And we see that the anonymity set can grow very quickly with usage. Same with an L2 shielded pool.

It’s about the long term.

Zcash is at its core is about privacy and everything decided so far has been and will hopefully remain with the aim to make it the private, fungible, cash for the world. As a L2, Zcash would be restricted in what it can or cannot do, and therefore it would most likely negatively affect that fundamental objective.

In that way, L2 privacy is inferior to L1 privacy.

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you didn’t provide a reason why L2 privacy is inferior.

if an L2 only has shielded transactions, and no transparent ones, and a larger anonymity set than Zcash, is its privacy inferior or superior?

if Zcash shielded pool is only used as a pass through to break links between transparent addresses, and an L2 has more payment activity in its shielded pool, which is inferior or superior?

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It seems the argument is ‘real privacy’ vs accessible and ubiquitous ‘acceptable’ privacy.

My understanding of Zcash is that we are trying to make real privacy accessible and ubiquitous.

We might be closer to phasing out Transparent than losing our consensus layer.

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Yes, the debate between “real privacy” versus “acceptable privacy” is REAL amongst the crypto investor community. Thanks for bringing this up.

Since there are plenty of acceptable privacy solutions being funded and developed, Zcash gets overlooked. I know many crypto funds that have sold off their ZEC since the “acceptable privacy” arguments are apparently more compelling to investors and investor returns.

And to further complicate our narrative, we continue to maintain transparent addresses so the project with the best privacy tech is labeled “not so private”.

IMO (again, worth two cents I know), we must fix the Zcash narrative problem and take steps to make a compelling case to investors as to why they should accumulate and hold Zcash.

I believe @joshs is starting to take such steps.

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I believe this is the basis:

I think its super interesting that we are all here for different reasons. Trade offs is what it comes down to… the top priority is unique for each person!

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Totally agree. My reference has nothing to do with my own opinion or the folks/investors on this forum. I am specifically referring to crypto hedge funds, many of which have solid off their privacy coins (Monero too) since they view government regulation and intervention as an existential threat. This fact, along with many funds simply believe acceptable privacy solutions (not truly private L1) are enough.

I’m here because I believe in full and complete privacy though this L2 approach may help us gain more users and a more viable financial path forward.

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I agree that we should not be so quick to move to another chain. For the same reason anyone here is thinking we should move, it is the case I have been making for a long time, we need more assets on our chain! Moving to another L1 likely would be the end of ZEC if it was to be done when there are no products other than ZEC, which has already proven it does not work for its stated use case. If ZEC doesnt work on our L1, why in the world would anyone think it would work on someone elses?

Its the product market fit, not the L1. The problem is Zcash doesn’t know who its customers are and it doesnt fundamentally understand money or what makes something investable (in my opinion). They know privacy; and its time to move beyond privacy. The customers don’t exist for ZEC as a private fiat for all the reasons I (and others) have stated so many times. Marketing, politics, advertising, education videos, wont work; except to get someone interested and then we quickly lose them as we have for many years. Its partly due to telling someone its money to use as a fiat equivalent (its not even close to something to use as a fiat and this is the most agregious of the claims because its known by the customer instanly to be false), its partly due to telling them its private (when its really almost all transparent), its the sync times the confusion about wallets that dont work. etc etc. etc…

Now we have a real problem when leadership is starting to think moving to another L1 is a solution. That means to me that they think the product is not the problem. It is. Plus, wont moving to an L1 end up being like going on a CEX? The L1 is going to have to comply with regulations as well aren’t they?

I think everyone here is for privacy. There are two main forms of privacy that I can see.

  1. Privacy from anyone in the world being able to see my transactions. Advertisers, competitors, theifs, Big Data, and anyone.

  2. Privacy from government. To me this is the legal compliance governments want and will require.

If Zcash is trying to solve for 1 and 2 and not be compliant with government rules/regulations, I think it wont work as an L1/L2. This will ultimately force it to move to an L1 on another chain (and then we need to rely on the new chain L1 to not be compliant). Even with more assets, it likely wont be able to get the scale needed to survive. And Zcash will collapse under its own weight. This is where we are today. If this is the path, we should immediately remove block rewards and turn this into a community volunteer organization; move to low cost mining ASAP. This is a fringe very small market (as we are seeing). A Privacy only narrative is only good when you are attaching it to real/stable money. And that will be very hard to do outside of working with government regulations. So we have Z and not the Cash. (I know many of you believe it’s cash and fiat, but that will sink the ship). ZEC is not a productive asset as it generates no fees and its costs are greater than the revenue (inflation does not count as revenue). And it is not a viable fiat because it has no collateral backing. The Foundation/ECC have only proven privacy works on the blockchain network. And thats it since its not being used as collateral in and of itself (which appears to be what BTC is targeting as Gold 2.0).

If Zcash is trying to solve for 1, and enable its users to be compliant in their respective countries, then the problem becomes not enough assets on the chain**. This is a solid foundation to build on if its opt-out or in compliance.** We need accept that we will never win #2 if we want to reach billions of people and improve their privacy. Money needs to have value, scale, and many technical features beyond privacy. so, we should try to work on technical solutions that will not impede the governments role (and it is their job and duty as representatives of a country) to catch bad actors while at the same time giving people privacy. This appears to be the Etheruem approach. Its a good one. This is the direction, I believe we not only should go, but I think its the only way to survive for ZEC. This can be a compliance by default; and people can opt-out. But if you opt out, you just dont get as much interconnectedness and likely other features that are easier to do with compliance.

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we hear a lot of talk about bitcoin originally designed to be P2P cash. That’s not true based on this email discussing the topic. the idea was for bitcoin to be a collateral token upon which banks would issue their own cash (Decentralized Cash with BTC as collateral or a mixture of collateral) much like how gold used to back fiat currencies around the world. so USDz, Euroz, etc would be issued with ZEC as collateral (or they could also use other collateral if they choose). this is my reading and very consistent with what I and others here have been proposing for a long time now.

now we all know from real life experience and empirical evidence that ZEC won’t work as P2P cash for spending for day to day transactions. The monetary policy of the US is going to be different than the monetary policy of Japan or Europe. So a one size fits all single global currency (ie ZEC) simply doesn’t work at the customer level (it only works at the central bank collateral level to keep the central banks honest). Hal Finney knew this very early in Bitcoin’s life cycle! The guy was obviously very smart and understood money! This is the way forward @joshs

since it was designed as a base layer for banks, it clearly was also expected to be compliant with regulations. So by going to an extreme version of privacy is actually what’s not in line with satoshis vision.

So Zcash went off track from Satoshi’s vision in two critical areas: 1) believing ZEC was the single global centralized cash for P2P transactions as opposed to a collateral token supporting decentralized cash that meets the needs of each country as they see fit, and 2) believing privacy extended beyond private transactions and into getting around government compliance because without compliance how can it be a collateral token for bank to bank transfers? Even if ZK proofs were invented at that time, it would still have to have been compliant to work as designed and for its use case.

@joshs new reboot vision with USDz, and stablecoins or whatever else a bank wants to issue is actually what is in line with satoshi vision! ZEC powers the network as a utility or collateral (in whole or part or something else) token upon which individual country stablecoins are issued against.

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Private stablecoins (ZSAs) will make a world of a difference for user adoption (as well as and especially merchant adoption). Besides the point, I think it’ll be wise to discuss regulation early on before deciding to deploy something like USDz or EURz as this will be a very different kettle of fish we’re dealing with here :eyes:.

If this is being discussed elsewhere, can you please share a link :blush:.

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we need Opt in or out privacey-lite.

  1. privacy by default transactions broadcast outside wallets.
  2. at the wallet level there probably has to be some type of wallet level ledger like a bank statement; this will be needed for proof of payment and refunds
  3. at the wallet level we need to have compliance options . this does not mean we need to show transactions publicly. if you don’t turn on compliance you don’t get access to USDz or features that require compliance

i think in this setup, the wallet becomes more like a personal bank and trading account when connected to a DEX. its privacy by default for transactions outside wallets.

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